Value Analysis: Going Back to Fundamentals

I just had a conversation with a vice president of supply chain who asked my firm for help in coaching her value analysis (VA) manager in the classic philosophy, principles and practices of value analysis. It seems her VA manager is spending all of her time on new product evaluations and group purchasing contract renewals, which the vice president realizes isn’t value analysis at all.

The reason this vice president wants her VA manager to go back to value analysis fundamentals, which has a 71-year history of success in industry, is that she understands that just adding more products (usually at an increased price) or renewing group purchasing contracts, typically at a higher cost due to inflation, isn’t going to offset the dramatic reductions in Medicare, Medicaid and insurance reimbursement that is coming her hospital’s way over the next few years.

As this vice president sees it, value analysis isn’t about price, standardization or GPO contracts, but is really all about functional analysis, utilization and demand management which most of us in the supply chain would consider savings beyond price. These are the operative words (savings beyond price) you use when you comprehend the true meaning of value analysis: The study of function, the search for lower cost alternatives and the elimination of all waste and inefficiency in your supply streams.

For instance, one of our clients who “gets it” about value analysis, is reducing the cost of his hospital’s I.V. catheters by $100,000 annually by drastically reducing the aesthetic features (i.e., nice to have, but not functionally required) that have always been considered absolutely necessary by his clinical staff, until this supply chain manager conducted a functional analysis of their I.V. catheter and proved that they weren’t needed after all. By the way, when this same supply chain manager first asked his I.V. catheter vendor to drop his price on his I.V. catheters all this vendor could come up with was a one-time discount of $20,000. While this sounds like a lot of money, just consider what this supply chain manager would have left on the table ($80,000) untouched if he had accepted this price concession alone and then went back to business as usual.

As this case study suggests, “Going back to fundamentals with value analysis” isn’t about revamping or reinventing your value analysis team(s), but instead refocusing their efforts on savings beyond price where the greatest savings opportunities (7% to 15%) are now hidden from view. Just as important, value analysis is all about understanding the products, services and technology functions you are buying and then searching for lower cost alternatives that meet those functions reliably and consistently, while at the same time driving out all waste or inefficiency in supply streams. That’s the difference between value analysis and anything else you might be doing and then calling it value analysis. With this in mind, let’s get back to the fundamentals of value analysis and save even more, in less time and with less effort.

Robert T. Yokl is president and chief value strategist of Strategic Value Analysis® In Healthcare, which is the acknowledged healthcare authority in value analysis and utilization management. Yokl has nearly 38 years of experience as a healthcare materials manager and supply chain consultant, and also is the co-creator of the new Utilizer® Dashboard that moves beyond price for even deeper and broader utilization savings. For more information, visit www.strategicva.com. For questions or comments, e-mail Yokl at bobpres@strategicva.com.